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Golden Parachute as a Compensation Shifting Mechanism

Albert H. Choi

University of Virginia School of Law

August 4, 2003

We demonstrate how a golden parachute can be used to improve the target shareholders' net return by partially shifting the managerial compensation burden to the buyer through a higher acquisition price. Consistent with the empirical observations, we show that 1) golden parachute will be contingent on a change-of-control rather than solely on the manager's layoff, 2) golden parachute will be promised early, e.g., at the time of the manager's employment, not just in the face of a takeover or a merger, 3) the shareholders would want to extend its coverage to other employees, and 4) the size of the parachute would be much larger than the manager's annual compensation.

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Date posted: July 27, 2002  

Suggested Citation

Choi, Albert H., Golden Parachute as a Compensation Shifting Mechanism (August 4, 2003). Available at SSRN: https://ssrn.com/abstract=319421 or http://dx.doi.org/10.2139/ssrn.319421

Contact Information

Albert H. Choi (Contact Author)
University of Virginia School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States

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